Credit Balances
All organisations try to do their sales on Cash & Carry basis, i.e on Cash Sales. Customers are asked to make payment before invoicing or on COD (cash on delivery basis. Such customers normally maintain some credit balance in their Account to avail Credit Note for Cash Discount. If commercial department reviews Outstanding Balances of their customers on Monthly / Quarterly /Yearly Basis, they will find that many of their customers are having credit balances in their Account. These Credit Balances require special treatment in finalisation of Balance sheet as it is a liability to the company.
Credit balances appearing in customer accounts at the period end should be shown on the liabilities side of the balance sheet as “Advances from Customers”. Accounts receivable balances should not be offset against accounts payable balances, even with the same party, unless a legal right of set-off exists.
All organisations try to do their sales on Cash & Carry basis, i.e on Cash Sales. Customers are asked to make payment before invoicing or on COD (cash on delivery basis. Such customers normally maintain some credit balance in their Account to avail Credit Note for Cash Discount. If commercial department reviews Outstanding Balances of their customers on Monthly / Quarterly /Yearly Basis, they will find that many of their customers are having credit balances in their Account. These Credit Balances require special treatment in finalisation of Balance sheet as it is a liability to the company.
Credit balances appearing in customer accounts at the period end should be shown on the liabilities side of the balance sheet as “Advances from Customers”. Accounts receivable balances should not be offset against accounts payable balances, even with the same party, unless a legal right of set-off exists.
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